20592
VALUE ADDED TAX — default surcharge — return admitted to have been rendered late — whether rectification of error in return should result in removal of surcharge — whether different rectification brought the amount of the penalty below the threshold for imposition — claim that surcharge liability extension notice not received — contention that payment for earlier period said to have been late was not in fact late — reasonable excuse on grounds of unforeseen bad debts advanced — Respondents undertaking to reconsider — appeal not finally determined

MANCHESTER TRIBUNAL CENTRE				    

	SPIER DEVELOPMENTS LIMITED	Appellant

	- and -

			THE TREASURY	Respondents

Tribunal:	Colin Bishopp (Chairman)
						Heather Kelly

Sitting in public in Douglas on 30 January 2008

The Appellant did not appear and was not represented 
 
Ian Hutton, counsel, instructed by and for the Treasury

© CROWN COPYRIGHT 2008

DECISION
1.	In this appeal Spier Developments Limited (“Spier”) challenges a default surcharge of £425.91 imposed following the admitted late rendering of its VAT return for the period 2006/12. The return should have arrived, with the tax, by 31 January 2007; the return and payment were in fact received on 23 February 2007. Spier had defaulted in respect of some earlier returns and the penalty imposed was at the rate of 10 per cent of the tax due (see the Value Added Tax Act 1996, section 59(5)).
2.	No-one appeared at the hearing to represent Spier (as the cost of attendance, Spier being based in Manchester, would have exceeded the penalty) but we had a letter written by its financial controller, Mr Alex Nicol, in which he advanced five separate arguments. The Treasury was represented by Ian Hutton of counsel.
3.	Mr Nicol’s first argument was that the return contained an error which, if corrected, would convert it into a repayment return with the consequence that, late though it was, no penalty would be due. The material he sent with his letter, however, indicated that the argument depended not on an error, properly so-called, but on Spier’s using the cash accounting scheme instead of (as it had done) conventional VAT accounting. Mr Nicol contended that Spier was entitled instead to adopt cash accounting, a contention which the Treasury agreed to investigate. 
4.	Second, he argued that, if Spier was required to account for VAT conventionally, it could nevertheless correct a different error, the mistaken failure to claim bad debt relief in respect of an invoice rendered in November 2005 which remained unpaid. That correction, if legitimate, would bring the penalty below the de minimis threshold of £400. Again, the Treasury agreed to investigate.
5.	The third argument was that Spier had not received notification from the Treasury that its return for 2006/09 was late. It appears that Mr Nicol does not deny that the return was in fact late; his complaint was that the absence of a warning meant that Spier was unaware that a further default would result in the imposition of a penalty at the rate of 10 per cent of the tax due. Since warning notices of this kind are generated and despatched by computer, and there was no evidence before us that (for example) the notice had been returned, undelivered, by the postal authorities, we are not satisfied, from nothing more than Mr Nicol’s unsupported assertion, that the notice was not received. In any event, a trader within the default regime, as Spier plainly was, should  take care to inform itself of the consequences of a further default. Ignorance of the provisions of section 59 cannot amount to a reasonable excuse.
6.	The fourth argument was that the 2006/06 return was not rendered late. Mr Nicol argued that it was sent on 31 July 2006, the due date. The copy of the return produced to us by the Treasury showed that it was recorded to have been received on 10 August. The law (section 59(1)) clearly requires that the return and payment are in the Treasury’s hands by the due date and, by Mr Nicol’s own account, this return cannot have been rendered on time. We therefore reject Mr Nicol’s contention that one historic default should be eliminated with the result that the penalty for period 2006/12, if one remains exigible despite his other arguments, should be imposed at 5 per cent, again falling below the de minimis limit.
7.	Last, Mr Nicol argued that Spier had a reasonable excuse because of the level of bad debts it had experienced. Lack of funds cannot normally amount to a reasonable excuse for a default: see section 71(1)(a) of the Act; but it may do if the lack is due to some unforeseeable circumstance against which the taxpayer could not reasonably have guarded. The material Mr Nicol provided with his letter, however, showed nothing more than the normal hazards of trade, continuing over a significant period. We do not doubt that Spier was suffering cash flow problems because several of the tenants of its properties failed to pay the rent due on time or at all, but that is a problem commonly faced by commercial landlords. There was no indication of a particular failure which could be regarded as unforeseeable, and of a magnitude or of a kind against which the Appellant could not realistically have guarded.
8.	We reject the third, fourth and fifth of Mr Nicol’s arguments. If, on further examination, the Treasury is satisfied that the relevant return should be adjusted by reason of one or other of the first and second arguments, Mr Hutton indicated that the penalty would be adjusted, or removed, correspondingly. If the parties are unable to resolve the matter between themselves by this means, we give permission for either to apply for a direction that the hearing of the appeal be continued.

COLIN BISHOPP
CHAIRMAN
Release Date: 27 February 2008

MAN/07/1052